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I haven't played either, but the second one is clearly better in every way. However, Arena features the entire world of the Scrolls, which is a good thing, even if it's not on the same scale as Daggerfall. Maybe I'll play Daggerfall sometime.
Actually, I didn't summarize my post – I don't recommend anyone play Arena under any circumstances! :D Despite its status as the progenitor of the Scrolls series and one of the progenitors of first-person games in general. As I said before, the ability to travel across all of Tamriel is a very symbolic advantage, because all the locations in the game are terribly monotonous. Starting with Morrowind, the developers took a different path – they abandoned the gigantomania and focused on the diversity of locations, even though this reduced the game world. If you're really interested, you can watch the same let's plays. In which, of course, the author cuts out the monotonous running around and somehow diversifies the dreary gameplay with comments, jokes, and amazing stories.)